SEBI Simplifies NRI PMS Investment Rules

The Securities and Exchange Board of India (SEBI) is undertaking a comprehensive review of its 2020 Portfolio Managers Regulations, a process initiated in February by Chairman Tuhin Kanta Pandey. This significant review responds to a push from the Association of Portfolio Managers in India (APMI) to facilitate easier investment for Non-Resident Indians (NRIs) in the country’s Portfolio Management Services (PMS) sector.

Understanding the Current Investment Landscape

Despite the Indian diaspora remitting over $140 billion annually, NRI participation in PMS assets remains notably low. This segment accounts for a low single-digit percentage of the industry’s total Rs 42 lakh crore Assets Under Management (AUM).

This disparity does not stem from a lack of NRI interest. Many NRIs actively seek global diversification and engagement with India’s capital markets, yet face substantial friction during the investment process.

Key Challenges Hindering NRI Investment

NRIs encounter a cumbersome onboarding journey that frequently demands physical signatures and hard-copy paperwork. This process also necessitates multiple regulatory approvals from bodies such as the RBI and IFSCA for demat and NRI bank accounts.

These requirements often incur significant costs, with attestation requirements potentially reaching up to $100 per document set. Furthermore, many PMS providers avoid clients from the US and Canada entirely due to the complexities associated with FATCA compliance, excluding a substantial portion of the financially capable diaspora.

Limited Impact of Past Reforms

Budget 2026 introduced measures intended to ease NRI investment, including doubling the individual NRI investment limit in listed Indian companies from 5% to 10%. The Portfolio Investment Scheme (PIS) was also strengthened during this period.

However, industry executives indicate that these adjustments have not yet led to a significant increase in new NRI account openings. The core systemic friction persists despite these policy changes.

APMI’s Recommendations for Streamlining

The APMI has been actively collaborating with SEBI for four years, providing comprehensive regulatory feedback and a global benchmarking study. Their advocacy highlights the need for a more adaptable framework.

Key recommendations from APMI include establishing a clear NRI/PROI framework and adapting the PMS structure to align with global wealth trends. They also propose significant improvements to the ease of doing business for both investors and portfolio managers.

Addressing the Tax Competitiveness Gap

India’s current tax treatment for NRI portfolio investments is not considered competitive when compared to established hubs like Singapore or GIFT City-style offshore structures. This disparity can deter potential investors.

Industry experts advocate for extending GIFT City-style tax benefits more broadly to encompass a wider range of NRI capital. Such a move could significantly enhance India’s appeal as an investment destination.

Pathways to Enhanced NRI Capital Inflow

Further improvements suggested include the implementation of single-window digital onboarding and standardized e-KYC processes. Smoother demat and bank account opening procedures are also crucial.

Clarity regarding tax treatment under Double Taxation Avoidance Agreements (DTAAs) and active promotion of GIFT City as a global wealth management hub are vital steps. Examples from Israel and the Philippines demonstrate that reducing friction and building digital-first, diaspora-specific investment platforms are crucial for attracting diaspora capital effectively.